Qualcomm earnings jump in fourth quarter

Shares take a hit as fiscal 2008 forecast is below Wall Street's estimates

By

DanGallagher

SAN FRANCISCO (MarketWatch) -- Qualcomm Inc. saw earnings surge 84% for the September quarter thanks to strong demand for the company's chipsets that power wireless phones, as well as a one-time tax benefit.

However, the company saw its shares take a hit in after-hours trading Thursday after it issued a disappointing earnings forecast for the current fiscal year.

For its fourth fiscal quarter ended Sept. 30, the wireless technology company
QCOM, -0.60%
reported earnings of $1.13 billion, or 67 cents a share, compared with earnings of $614 million, or 36 cents a share, for the same period last year.

Excluding charges related to stock-options as well as a benefit from an audit of prior years' tax returns, the company said earnings would have been $911 million, or 54 cents a share.

Revenue grew 15% to $2.31 billion for the period from $2 billion last year.

Analysts were expecting earnings of 53 cents a share on revenue of $2.26 billion, according to consensus estimates from Thomson Financial.

The bulk of growth for the quarter came from the company's chipset business, where revenue grew 24% to $1.4 billion. Revenue at the licensing business slipped 2% from the prior year to $647 million.

At the wireless and Internet segment, revenue jumped 25% to $245 million. This unit includes the company's BREW service, which provides wireless data services.

The company spent heavily during the fiscal year on legal expenses, stemming from its wide-ranging battle over patent licensing with rivals such as Broadcom
BRCM
and Nokia
NOK, +0.98%
Legal costs totaled more than $200 million for the year ended Sept. 30, the company said.

Little progress on legal front

Qualcomm holds numerous patents covering CDMA, a popular wireless technology standard that forms the backbone of many next-generation networks coming online in the U.S., Europe and Asia. Wireless device makers such as Nokia and Ericsson have challenged the company's patents, seeking to lower the royalty rate they must pay for use of the technology, which they claim is too high.

Qualcomm is also in several patent infringement disputes with Broadcom, which has accused the company of infringing on its own technology. Broadcom scored a victory earlier this year, when the International Trade Commission issued an injection against cell phones using Qualcomm's chipsets. The matter is under appeal.

In a conference call, Qualcomm president Steve Altman said no progress has been made in settlement talks with either Broadcom or Nokia.

"To meet our needs, any settlement must reflect the industry -recognized value of our intellectual property and permit all of our businesses to continue to thrive and contribute to the technological advancement and growth of the industry," Altman said.

Forecast below Street targets

For the current quarter ending Dec. 31, the company said it expects earnings to come in between 50-52 cents a share on a pro-forma basis. Wall Street expected earnings of 52 cents a share for the period.

For the 2008 fiscal year, Qualcomm expects earnings to come in between $2.03 and $2.09 a share falling under the current Street forecast for $2.18 a share in earnings.

A factor in the lower-than-expected earnings is that the company is not including royalty payments that would be owed by Nokia under the current licensing agreement between the two companies. That agreement is currently the subject of multiple lawsuits between the two companies.

Qualcomm said the amount of royalties it believes Nokia would owe under the existing deal for 2008 would total 25-30 cents a share.

Another factor for the year will be even higher spending on legal costs. The company said it expects legal costs to increase by about 4 cents a share for the 2008 fiscal year.

Qualcomm shares fell more than 8% in after-hours trading Thursday following the report. The stock closed the regular session off 3.5% at $39.76.

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